Partner's Loan Account

Correct answer: A. To show unpaid amount due as a liability

When the retiring partner is not paid fully at once the balance becomes a loan. It is shown as a liability of the firm.

Correct answer: A. On liabilities side

The direct answer is A: the retiring partner’s loan account appears on the liabilities side of the balance sheet. After retirement, any amount still payable to that partner is a debt of the firm. A liability means an amount that the business must pay to an outsider or creditor in the future. Therefore, the credit balance of the loan account is shown under liabilities, usually as a separate loan or payable. Option A is correct because the firm owes this money. Option B is wrong because an asset is something owned or recoverable by the firm, whereas this amount must be paid by the firm. Option C is wrong because the income side records revenues or gains, not outstanding loans. Option D is wrong because expenses are costs incurred to earn income; an unpaid partner’s loan is not an expense. Exam cue: ask, “Who owes whom?” If the firm owes the retiring partner, show it as a liability.

Correct answer: A. Retiring partner capital account debit and retiring partner loan account credit

When the capital amount due is converted into loan the capital account is closed. Therefore capital account is debited and loan account is credited.

Correct answer: A. Retiring partner loan account debit and bank account credit

Payment reduces the loan liability of the firm and also reduces bank. Therefore loan account is debited and bank account is credited.

Correct answer: A. A loan account is not required

The governing concept is that a partner’s loan account is opened only when an amount payable to the retiring partner remains unpaid and is converted into a loan. If the firm pays the entire amount due immediately, no liability remains outstanding in the form of a loan. Therefore, no separate partner’s loan account is required, making option A correct. Option B is wrong because a loan account is not compulsory in every retirement; it depends on whether payment is deferred. Options C and D describe sales and stock, which are unrelated to the purpose of this account. The account is a liability record, not an income or inventory record.

Correct answer: A. ₹1,30,000

The governing rule is that the amount transferred to a retiring partner’s loan account equals the final amount due minus any amount paid immediately. Here, the total due is ₹1,80,000 and the immediate payment is ₹50,000. Therefore: ₹1,80,000 − ₹50,000 = ₹1,30,000. The unpaid balance of ₹1,30,000 becomes the firm’s loan liability, so option A is correct. Option B is the amount settled in cash and therefore does not remain in the loan account. Option C ignores the immediate payment. Option D incorrectly adds the payment instead of deducting it. This distinction separates the amount discharged now from the amount payable later.

Correct answer: A. ₹7700

The direct answer is A: the one-year interest is ₹7,700. Interest means the charge for using money. Use the formula Interest = Principal × Rate × Time. Here, principal is ₹110,000, annual rate is 7 percent, and time is one year. Therefore, interest = ₹110,000 × 7/100 × 1 = ₹7,700. Option A is correct. Option B, ₹7,000, results from using the wrong base or rate and does not follow the stated calculation. Option C, ₹11,000, is 10 percent of the principal, not 7 percent. Option D, ₹117,700, is principal plus interest, not interest alone; ₹110,000 + ₹7,700 is the amount including principal. Since the period is exactly one year, no month conversion is needed. Memory cue: first calculate interest, then add it to principal only if the question asks for the total amount.

Correct answer: A. ₹6000

Eight months is ( \frac{8}{12} ) year. Interest is (150000 \times \frac{6}{100} \times \frac{8}{12}=6000).

Correct answer: A. ₹1800

Three months is ( \frac{3}{12} ) year. Interest is (72000 \times \frac{10}{100} \times \frac{3}{12}=1800).

Correct answer: A. Deceased partner capital account debit and executor loan account credit

The capital amount due to deceased partner becomes loan payable to executor. Therefore capital account is debited and executor loan account is credited.

Correct answer: A. ₹95,000

Payment reduces the liability in the executor’s loan account. Remaining liability = ₹1,60,000 − ₹65,000 = ₹95,000. Therefore, option A is correct. In the examination, remember to subtract partial repayment from the total liability rather than adding it.

Correct answer: A. 6 percent per annum

Partner loan generally carries interest at 6 percent per annum. Use this rule in exams when rate is not given.

Correct answer: A. The rate given in the agreement

The governing concept is that the partnership agreement is the primary basis for determining rights and obligations between partners, including interest on a partner’s loan. When the agreement clearly specifies an interest rate, that exact contractual rate must be applied to the loan balance, so option A is correct. A fixed rate such as 6% or 12% cannot be assumed merely because it is common in some examples; those rates are not universally applicable. Option D is also incorrect because the agreement expressly provides for interest. A general statutory or textbook rate may be relevant only when the agreement is silent, subject to the applicable partnership law and syllabus rule.

Correct answer: A. Interest is an expense and principal payment reduces liability

The governing accounting distinction is that interest and principal repayment have different effects. Interest is the cost of using borrowed funds, so it is treated as an expense of the firm and increases the amount payable if it remains unpaid. Principal repayment, in contrast, is not an expense; it directly reduces the outstanding loan liability because part of the borrowed amount is returned. Therefore, option A is correct. Options B, C and D are unrelated classifications: a loan settlement is neither a sale, nor a partner’s drawing, nor goodwill. Keeping these two components separate is essential when preparing or reconciling a partner’s loan account.

Correct answer: A. Debit side

A loan account of a retiring partner records the amount payable by the firm and the settlement of that liability. When the firm pays an installment, cash or bank decreases and the loan liability also decreases. In the loan account, a decrease in the liability is recorded on the debit side. Therefore installment payment is entered on the debit side, making option A correct.

Interest credited to the retiring partner generally increases the amount payable and is recorded on the credit side of the loan account, while payments are debited. This debit does not mean the retired partner owes the firm; it shows that the firm has reduced its obligation. The credit side is used for the opening amount due and additions such as interest, not for the repayment itself.

Correct answer: A. Credit side

Interest due increases the amount payable to the partner. Therefore it is recorded on the credit side of loan account.

Correct answer: A. Firm remaining liability

A partner's loan account records an amount that the firm owes to a partner after the partner retires. A credit balance means the amount stands on the credit side of the account, so the firm has not yet paid it completely. It is therefore an outstanding obligation of the firm, not an asset, income, or stock balance.

The retiring partner's capital account is settled separately, while any unpaid amount due to that partner is transferred to the partner's loan account. Since the firm must pay this amount later, the credit balance represents the firm's remaining liability. Thus option A is correct. A debit balance would have a different meaning, but it is not the situation described here.

Correct answer: A. Capital shows partnership entitlement and loan shows unpaid liability

Direct answer: option A. A capital account records a partner’s ownership or partnership entitlement in the firm. When the partner retires, the amount finally due is determined after all adjustments. Any part not paid immediately is transferred to a loan account. That loan no longer represents continuing ownership; it represents an unpaid liability of the firm. Option A correctly states this distinction. Option B says both are sales accounts, which is false because neither account records sales. Option C says both are stock accounts, but stock is recorded separately from partner accounts. Option D says both are income accounts, but neither records business income. The supplied answer is correct. Memory cue: capital means ownership claim; loan means unpaid amount owed after retirement.

Correct answer: A. ₹97,000

Interest on ₹1,40,000 at 5% is ₹7,000. Therefore, the total amount due before payment is ₹1,47,000. After paying ₹50,000, the final balance is ₹1,47,000 − ₹50,000 = ₹97,000. Option C is the amount due before payment, not the final balance. Exam tip: Add the interest first and then subtract the amount paid.

Correct answer: A. ₹1,30,000

When there is no interest, the paid installment is deducted from the loan balance: ₹2,20,000 − ₹90,000 = ₹1,30,000. Therefore, option A is correct. Option C ignores the repayment, while option D incorrectly adds it. Exam tip: Deduct every installment paid from the loan balance unless interest or another adjustment is specifically given.

Correct answer: A. Loan payable decreases

Payment against the partner’s loan account reduces the amount payable by the firm, so its liability decreases. In the entry, the partner’s loan account is debited and the bank account is credited. Remember that transferring the amount due to a loan account increases the liability, whereas paying that loan reduces it.

Correct answer: A. The amount payable increases

Interest on the loan is an additional financial obligation of the firm to the retiring partner. When it is added to the loan account, the account’s credit balance rises, and the amount that must ultimately be paid also rises. A reduction would result from repayment, not interest accrual. Bank and goodwill are not the direct effects described here.

Correct answer: A. Executor loan account

For installment payment the unpaid amount due is kept in executor loan account. Each installment reduces this liability.

Correct answer: A. ₹2500

Four months is ( \frac{4}{12} ) year. Interest is (125000 \times \frac{6}{100} \times \frac{4}{12}=2500).

Correct answer: A. ₹1,80,000

A payment towards the principal directly reduces the outstanding loan balance. Therefore, remaining principal loan = ₹3,00,000 − ₹1,20,000 = ₹1,80,000. Option C ignores the payment, while option D adds it instead of deducting it. Exam tip: when interest is not mentioned, subtract only the principal repayment from the opening loan balance.